Amazon & GSCOP: The Implications For Brands

Written by Paul Adams, Tambo CEO, and John Noble, Director of British Brands Group

Amazon & GSCOP: The Implications

The announcement by the Competition and Markets Authority (CMA) on 9th February 2022 that Amazon was to become a designated GSCOP retailer and must comply with the Groceries Supply Code of Practice, is an unquestionable milestone for the company.

Amazon has been on the Competitor and CMA’s radar ever since they set up the Amazon Fresh programme in 2016. Despite this, the CMA has found it difficult to pin them down as Amazon never discloses the proportion of their business derived from grocery in their annual accounts. Now that Amazon, together with its two UK subsidiaries Amazon EU Sarl and Fresh and Wild, have UK grocery sales over £1 billion, it has been placed amongst the top fourteen largest grocery retailers in the country.

The GSCOP designation is great news for the grocery manufacturers in a First Party (1P) relationship. And in time, this will also be great news for Amazon.

GSCOP explained

The Code interprets ‘groceries’ broadly, covering household, toiletry and cleaning products as well as food and drink. What is key is that the Code influences behaviour, affecting the way retailers and suppliers work and talk to each other.

At its core, GSCOP is the requirement for designated retailers to treat their suppliers fairly and lawfully. It was introduced by the Competition Commission over concerns that large retailers were passing unexpected costs and excessive risks to their suppliers. That created commercial uncertainty of sufficient magnitude that it risked harming suppliers’ scope to invest in choice, quality and innovation that would in turn harm shoppers and consumers.

Now, the suppliers can look forward to a more favourable relationship through better terms and reduced business risk

For example, a supplier has enough incentive to try and resolve situations where it feels it has been treated unfairly or unlawfully, incentives that may not be matched on the retail side. For designated retailers, motivation to resolve potential breaches comes from an active and dedicated Code monitor and enforcer in the form of the Groceries Code Adjudicator and the prospect of a maximum fine of up to 1% of the retailer’s total UK turnover for egregious breaches. In the case of Amazon, that would include turnover from Vendors, Sellers, Fresh and Wild and, potentially, Amazon Web Services. That’s a potential maximum fine of £260 million.

Such incentives have proved sufficient for existing designated retailers to introduce internal procedures highlighting when suppliers have GSCOP concerns, the ability of their Code Compliance Officers to have confidential discussions with suppliers and dedicated supplier helplines to resolve financial disputes, separate from the buying team. This approach does not readily sit within Amazon’s model, where automation rules, suppliers must pay to have access to a Vendor Manager and there are no ready channels to resolve payment queries.

The Amazon Supplier view

Currently, the overall relationship between Amazon amongst grocery manufacturers is strained. Negotiating terms are often unstructured, tense, time consuming and protracted. The suspension or delisting of products without notice and other negotiating tactics are resented by Sale Directors. As a result, many large grocery manufacturers have pulled back from Amazon due to the challenging sales environment.

GSCOP could spell good news for suppliers in this regard as it significantly constrains retailers’ ability to impose charges and make deductions without suppliers’ agreement. If a supplier queries a deduction within 30 days, the deduction cannot be made until agreement is reached. Retailers’ supplier helplines have been introduced to bring efficiency to this process, something not currently available to Amazon vendors.

The Amazon view

GSCOP will bring more standardised and professional practices to Amazon that will enable stronger and better relationships. Additionally, more transparency on spend will mean that vendors will be more prepared to invest behind initiatives to drive growth. In fact, if Amazon successfully implements GSCOP, this could lead to Amazon revising their vendor framework and agreements in other categories, benefiting the overall retail industry.

The versatility of GSCOP suggests that it has the potential to be compatible with Amazon’s business model, though some significant changes are likely to be needed, notably around agreements, transparency of charges, deductions and accessibility of staff to resolve issues that otherwise may result in payment delays.

Some areas though may not be clear cut and this is where there may be some challenges. For example, the Adjudicator has the power to publish guidance or best practice on how the Code is to be interpreted and applied. So, if Amazon levies non-negotiable and unspecified charges on vendors for a product to be listed on Amazon, then does that amount to a listing fee, another GSCOP red line in most circumstances?

In conclusion

Suppliers need a strong grasp of the Code’s provisions if they are to reap its promised benefits of greater certainty and reduced trading risk. They need to understand the scope of the grey areas, know their options for addressing and escalating discussions, where and how they can best leverage the Code to reach a compliant settlement and how to keep the Adjudicator informed on current market practices, drawing his attention to those areas where the Code is not working within a particular retailer. This is where training comes in along with membership of associations such as the British Brands Group which is dedicated to ensuring the Code works day-to-day for its members as intended.

GSCOP has transformed relationships between suppliers since its inception. It has not inflated retail prices as originally feared. Instead we have witnessed increased innovation, increased efficiency, better joint outcomes and more effective ways of working, with designated retailers becoming exemplars for prompt payment.

Meanwhile in the UK grocery becomes ever more competitive. Amazon may need a period of adjustment to align with the Code, though the indicators are that it has much to gain and little to lose from its GSCOP designation.

The Brands Group is a corporate membership organisation dedicated to championing brands and ensuring in the UK is a world class market in which to create and build them. It has been closely involved in GSCOP since its inception, was the first organisation to develop training on it for suppliers and works on it day-to-day with members to ensure it is effective.

Tambo, is a global marketplace services platform, who grow brands on marketplaces like Amazon. Tambo are specialists in the Grocery category and work with several leading grocery brands on Amazon.

The Brands Group and Tambo collaborate to help branded companies drive their growth on Amazon and are building on this collaboration to help suppliers understand and manage positively the implications of Amazon’s GSCOP designation.

A 45-minute free online seminar will be held on 24 March 2022 at 1500 on the topic. Please email the Brands Group or Tambo if you wish to attend.